Ratings

This page has been designed to keep you up to date on analytical initiatives that Standard & Poor’s Financial Institutions Ratings Team is developing to enhance our analysis of banks around the globe.

Standard & Poor’s Risk-Adjusted Capital Framework (RACF)

The Standard & Poor’s Risk-Adjusted Capital (RAC) ratio will provide a globally consistent and independent view of capital adequacy for rated financial institutions. Other risk-adjusted capital measures are either increasingly issuer-specific (making it difficult to use them to compare institutions), or not risk-sensitive enough. Therefore, Standard & Poor’s has developed the RAC ratio to help us maintain ratings comparability and consistency. The RAC will be the starting point for our analysis of capital adequacy.

Standard & Poor's Stress Testing For Financial Institutions

Standard & Poor's Ratings Services has refined its methodology and assumptions for credit loss stress testing for financial institutions.

This globally consistent framework delivers "base case" and "downside" credit stress tests for each market to which this methodology is applied. We develop specific loss assumptions by country, region, and financial market segment. The impact of the credit losses implied by the base case is considered in our assessment of earnings and the impact of the downside scenario or scenarios informs our opinion of credit risk. These assumptions are not designed to constitute precise forecasts, but rather to express a scenario in quantitative terms in order to assess an institution's ability to withstand such losses. The use of stress tests helps us differentiate the credit risk profile of financial institutions within a peer group. In general, the larger the loss impact, the greater the credit risk.